Homeland Security

06/11/2004 12:00 am EST

Focus:

Bryan Perry

Editor, Cash Machine, Premium Income, Quick Income Trader, Instant Income Trader

"Our ChangeWave analysts have reviewed the Homeland Security sector and note that of all the sub-sectors within that market, surveillance and bio-identification appear most favorable," says Bryan Perry, editor of the excellent Tactical Trader. Here's his pick to play this trend.

"For us here in the Washington, DC, the rise of the Department of Homeland Security has been a boon to the local economy. A good portion of the first $400 million budgeted stayed right here because of the natural concentration of local companies in that industry. With emotions running high about security issues both here and abroad, budgets for security-based technologies are expanding rapidly, with a heavy emphasis on surveillance and bio-identification. Checking for physical features and keeping an eye on everything is seeing huge demand from government, commercial, and private-use markets. And there is no reason at this time to think that this landscape is going to change. In fact, it is one area where we believe spending will accelerate. When looking at this sector, it is easy to see how dozens of companies have jumped into this new and hot industry. So it is of the utmost importance that if we are going to trade in this sector we stick with the well-embedded pure play that has solid fundamentals, solid financials, and a rapidly growing order backlog. This week's pick is the cream of the surveillance industry.

"We are recommending Verint Systems (VRNT NASDAQ), a leading provider of analytic software-based solutions for communications interception, networked video security and surveillance, and business intelligence. Verint software is used by more than 1,000 organizations in over 50 countries worldwide. For the fiscal year that ended Jan. 31, revenues rose 22% to $192.7 million. Net income rose 77% to $17.9 million. Revenues reflect an increase in volume of products and services. With the bombing of the trains and stations in Spain, just ramping up security at the hundreds of rail stations here in the US will be an aggressive task. But it is a task that is seeing aggressive funding by federal and state municipalities where there is little, if any, resistance by citizens or politicians. So the wind is at the back of this ChangeWave, big time. Technically, it is very easy to get excited about VRNT's chart. The stock broke out of a triple top and an ascending pennant formation in early March, right at the $27 level. This is a powerful chart formation, one that is a precursor to a strong intermediate move up for most stocks that put in this pattern. The stock traded as high as $34.41 before backing off to its breakout point. I expect the stock to take out the previous highs and trade up to $38, which is our price target. For option traders we would also suggest buying VRNT November 25 Calls  (currently offered at $5.60 per contract). Keep in mind, there is little to no open interest in the options, and therefore the use of limit orders is highly recommended."

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